People looking to be first time homeowners soon, what's your plan?
I'm a young single adult with a fairly well paying remote job. I've been in my career for almost 4 years now and have saved up a decent chunk of money through investing and saving.
My game plan was to use the "market crash" that everyone was predicting in 2023 to try and make a stab at purchasing a home. When the interest rates spiked I thought it was a great sign for me because I thought for sure that housing prices would fall accordingly, jokes on me though because several months later homes in my area have barely gone down in price at all and even closer to town in nicer areas prices continue to climb.
Not only that but the only real thing the rate hikes have done for me personally is make what was looking like a modest mortgage payment suddenly become far less affordable, even with my very low personal spending.
Is anyone else in a similar situation? Are we doomed to rent forever? Should I move out to the boonies where it seems like that's the only place left with non-insane housing prices?
I look at Zillow and houses in my area that sold for 200k~ less than 5 years ago are now on the market for 400k-500k. It feels like anyone who didn't get in back then is just completely screwed
/rant
If you’re a young, single adult with a well paying remote job, exercise patience. Don’t be in a rush to get into a huge financial commitment just because it feels like some rung on the ladder. Stack cash, live frugally, have fun, and go live a good life. Home ownership is a lot of work. And current prices are unsustainable when you look at median incomes. There was a lot of irrational exuberance before the last crash too. People saying that was the new normal. Just save your money and be patient, you have plenty of time.
This is encouraging to read, but it does sometimes feel very bad to be "throwing away" money on rent instead of building equity in a home. As someone who was raised to live very frugally any wasting of money just ramps my anxiety up.
You’re not throwing away money. You’re paying for a place to live and someone to fix anything that breaks in it. Rent is the most you’ll pay in a month for housing, a mortgage is the least you’ll pay.
I’m a fairly young renter but this just doesn’t sit right from my experience. My current landlord has some serious issues with respecting my privacy (frequently entering my unit without any notice) even though I’ve made it clear that this is not ok with me and call them out every time they do it.
Then you have the rent increasing every year- they tried to increase my rent by 16% this year which is just untenable year after year. It’s not even a nice place: my bathroom doesn’t have a door, consistent issues with the washer/dryer, was dirty when I moved in, but I digress.
I’ve honestly yet to see any actual benefits to renting - there’s “flexibility” but this also means you can be priced out of your home every single year. Home ownership was a light at the end of the tunnel, and while I’m in a career that makes great money I don’t know what kind of timeline I’ll be working with, and many of my friends are nowhere near being able to buy a home.
Anyways, it just feels like I’m throwing away money because my landlord treats me like cattle. Maybe I got a really bad one, or maybe I can find a good one now that I know what to look for.
As @simplify said, you're not throwing money away.
You're also paying for flexibility: you can up and move to a new place as little as a month's notice for little to no extra cost (depending on your lease). Selling a home isn't a fast or easy process, especially if you want to get the most sales price that you can.
With a mortgage, you're pretty much locked into that house for at least 3-5 years before you could sell without actually losing money (
sale price - (original price + closing costs + interest paid + maintenance costs)).And don't forgot to factor in your own, personal time that you're saving: you don't need to spend time mowing a lawn or maintaining landscaping, dealing with snow removal (depending on your climate), or even just the amount of time you would spend dealing with general maintenance and upkeep (not including the costs involved with that).
We bought our first house in the fall of 2019 (which was really, really good timing) while in our mid-to-late-30s, so I'm speaking from experience that there is a lot of freedom—especially when it comes to your free time—that comes with renting that many people don't consider.
We bought a house that was essentially ready-to-live (where we could move in, not change a thing about the house for a few years, and still be perfectly satisfied), yet my to-do list for the house still grows faster that I can mark items off the list.
So don't spend any of the hours of your life that you're saving by renting on worrying about wasting money by renting. Our time is finite.
Fun fact: In Ontario, Canada rental units created or occupied before 2018 are rent-controlled, so if you rented something for 3 years you are still pretty much paying a rent from 3 years ago with a little addition. But it does not apply to new tenants, so if now you are looking to move you'll be paying much much higher for a place of same size, same neighbourhood, etc. With a speed rent increases sometimes it's twice as much. So it does feel like throwing away money or being stuck :)
Well it depends. In my country (Poland) renting is usually way more expensive than mortgage combined with other expenditures related to ownership, hence renting is considered throwing money away. Home ownership rate here is almost 90% for that exact reason. The only people who are not homeowners are basically students. Overall benefits of ownership hugely outweight renting as there is not only aspect of money but also privacy etc.
I know you're not out here hoping for a crash, and I am only speaking from experience as someone who was old enough during the last housing crash.
For all the people who are hoping for a crash, or maybe not hoping, but for people saying a crash will happen..... If a housing crash happens, it won't be just a housing crash. You won't just wake up one Friday morning and suddenly houses are 20-40% cheaper than they were two months ago.
If a housing crash happens, you are highly likely to be out of a job. Or maybe you'll have your job but your parents will lose their job. And your boss will be out of a job. And your sibling may lose their cars. And on and on and on.
This is a huge simplification of what happened in 2007-2009, the housing crash didn't happen because house prices dropped 50%. It happened because a lot of people lost jobs and couldn't pay their houses, rents, car payments, and when they couldn't pay their houses, rents, car payments, credit card bills, then those companies had to lay off more people or straight up went out of business, and then those people who just lost their jobs, couldn't pay their bills. It became a chain reaction. That is why house prices dropped. And they kept dropping because no one was buying the houses that were up for sale. No one was buying them because no one had jobs to pay for them regardless of how cheap they were. You could list a house in 2009 for sale, and it would sit on the market for months on end without a single offer. You'd drop the asking price, and no one showed up. You'd remodel the house, and no one showed up. you'd drop the asking price again, and no one showed up.
While I am not advocating for house prices to just keep going up, I will just warn everyone out there wishing for a housing crash, be ready for all the other consequences of a housing crash.
The unemployment rate in 2005, 2006, and 2007 were some of the lowest it had been for three decades. Every single economist has provably attributed the housing crash to predatory lending practices in an unregulated market that fostered a pay-it-back-when-you-make-more-money ethos and piling on of consumer debt that is only matched by our own government. A result of those practices led to layoffs and furthering the crash as the people that caused the crisis in the first place went into save-my-own-ass mode and then given handouts to stop the market correction of the overinflated house prices.
When you adjust for inflation the US median home price, post WW2, has always been about $200k. Every time it's creeped above that, it's crashed/corrected. It stayed that way after the correction in the 80's through the late 90's when it kept going up until the 2008 crash, but bailouts stopped it from getting back to normal and median only dropped to about $230k and did this upward spike we're back into now. At the pre-2008-crash-peak median prices were $300k, we're at $385k now. Median housing prices always followed inflation until the repeal of Glass-Steagall in 1999.
So no, people losing their jobs didn't cause the crash. Corrupt government officials in the pocket of greedy banks removed the barriers to risk which caused the crash and continue to cause the overinflated prices.
As a homeowner, it needs to crash, it needs to be allowed to completely crash without government intervention, and it needs to crash now.
That's a fair comment, but that describes one type of housing crash, and not all types.
The main reason housing prices are so high right now is because the vast majority of city are zoned to mandate single-family homes, not apartments. If, somehow, this was fixed overnight then the price of housing would start to drop. And if this was clearly a long-term readjustment then we would expect to see speculators rush to sell, which would exacerbate the falling prices (i.e. a crash).
This hasn't happened and likely won't happen, because it would require a radical political shift, but it could happen, and we'd be better off if it did.
German here, we are currently having the crash, albeit differently than expected: Last year I inherited our family home, it's over 130 years old and the last general renovation took place in the late 70s - it was always well kept and maintained, but except new windows etc nothing bigger was done anymore. We put it on the market last fall, and by some random issues here and there we finally sold it a few days ago, to a price tag that was (luckily) agreed months ago. The realtor told us that if this sale had failed and it would have gone on the market again, the asking price would have been about € 40,000 lower than it was before.
On the one hand you start to pay interest rates again and inflation took it's toll, but more importantly it's written on the wall in Germany that old heating systems will have to be replaced in the upcoming years. Such regulations are already in place, but the new regulations are much more strict. As a result many people who would be affected by these regulations now try to get rid of their houses as fast as they can to avoid the investment into a house they were going to sell anyway. As a result, if you are looking for an old house needing a new heating system in rural nowhere in Germany right now, that's the time to buy...
And I'm not talking about a house with an asking price in the millions before, so going down said € 40,000 would have meant a dramatic loss in value for us.
That's interesting. Congrats on selling when you did.
If you don't mind sharing, what is the impetus for the regulations on heating system changes? Is it environmental or the Russian war in Ukraine?
What are the new regulations? I assume moving away from gas heating, but finding information was surprisingly hard when I googled it. But then, I don't often try to google news about Germany so maybe I was just doing it wrong.
It's a mix. Partially it was already an ongoing process, the relevant law for it isn't really new. Given how important the Green party has become in politics since their start in the 80s it's still not no 1 on politics, but it's a topic most parties (far right aside) realized that it gives you votes. Also the Federal Constitutional Court a while ago forced gouvernment to speed up things as they regarded delaying action as unconstitutional as it meant that future generations would suffer too much (simplified). Ukraine sped up things again tremendously. In the winter 2022/2023 it was unclear at first if there would be enough heating plans for everyone given or too heavily reliance on russian gas. Also it turned out that Gazprom-owned storage facitilites were by and large empty. So matters are sped up now, but it wasn't communicated at all beforehand.
So old regulation was only that if your heating system is older than 30 years, it must be replaced. The new regulation causing the drama was that from 2024 onwards must be at least 65% fueled by renewables. So you are not allowed to replace an old gas heating system with a new one, but must replace a gas heating with something entirely else which adds a lot of cost. The state will partially co-finance this, but this all was very badly or not at all communicated and came as a big surprise. So if you're going to sell your house in 10 years anyway and would have to replace the heating system, you are quite tempted to sell right now so the buyer will have the problem.
Thanks for the congrats, I still wished my parents would have lived longer, but that would be too much off topic here.
Ah sorry. I supposed you would have preferred to never need to sell the house in the first place.
Really appreciate all the information. Love that you have a court that forced the government to speed up in taking action. We could really use something like that in Canada. I think the icebergs will be gone and our government will still be talking about lowering pollution to 2006 levels.
Last year my mother was already starting to toy with the idea to finally sell it. The plan would have been that she sold the house and moved to my town (just the town next to her, so no big difference for her everyday life) and buy an apartment. This way she wouldn't have the workload of maintaining everything alone after my fatheer's loss, and I could have taken care of her easily for many years to come. Well... and then I lost her as well, so having to bury both parents in less than two years so next to the grief, I suddenly had a house I didn't need. I think selling in the way she toyed the idea last year would have been hard enough, but regarding the circumstances (she didn't die from natural causes) it was just a disaster and at the same time, I had far more important problems than an idling house.
The Constitutional Court intervened when a new climate protection law was made in 2019. That law didn't make provisions for the time after 2030. The Federal Constitutional Court ruled that this would push the burden to fight climate change on future generations, so these would have less freedom and would have to accept much harsher laws and problems, too much burden, if the current generation doesn't do enough. As freedom is a centerpiece of German constitution the lawmakers would have take precautions for a switch to climate neutrality protecting everyone's freedom, including future generations.
TL;DR that court can be awesome.
I would focus on finding a partner first while you don’t have the burden of homeownership yet. Easier said than done especially working remotely, I know, but it’s the most common way to double your income and make more housing affordable to you.
Second staying away from HOAs. I am currently renting in a place with an HOA. Guess who got a letter this week saying I needed to take down their birdfeeder?
Probably not what you wanna hear but I got mine 5 years ago and couldn't be happier with that decision considering current situation. It was obvious for me at that time that the predicted "bubble burst"/"market crash" won't happen anytime soon due to high demand and it turned out it might never happen as demand is as high as ever. So basically yes, I think that who hasn't decided few years ago to get a flat/home is now pretty much screwed and I really doubt it will change for better in the upcoming years.
I’m in the same boat. Spent ages waiting for a drop that never happened so just took the plunge. It’s had issues obviously but I feel happier living in a place I own because I always feel like I’m improving something for myself and it’s removed a lot of anxiety about being kicked out or silly rules and inspections.
Yup that's exactly what I did. I was hesitating at first because the prices weren't that good even few years back but I decided to take a gamble that paid off big time.
Pretty much in line with my expectations. Unfortunately for me and a lot of people it just wasn't possible to buy a home a few years ago, so it's frustrating but at least I can't blame myself for not trying. Maybe I'll take up construction and build my own home lol.
Reading that was like deja vu with what I've gone through recently.
I work in person. Housing prices (and interest rates) everywhere within a 1 hour drive of work have outpaced local (closer to entry level) salaries.
I was a young single adult with a week paying remote job as well. Just bought my first house in my mid 30s last 6 months ago after getting married.
For advice it really depends on what you're wanting a house for. If you're in a major metro you aren't going to see prices go down unless there is either a bubble pop witch would be a major disaster or corporate offices start getting converted to apartments. Beyond that demand continues to rise faster than supply even without corporations buying them up due to interest rates.
If you're looking to build equity while living where you want to live then go ahead and buy the house you want and can afford. Know that property taxes will raise as your home value increases and plan for that in your budgeting. High interest rates can be refinanced once they go down again and shouldn't be too off-putting.
If your goal is to buy a house to maximize your money while still being close to things to do look at buying somewhere that's just beyond the outskirts of a major metro. Someplace where the prices are still low but the growth hasn't quite reached yet that in the next 10-15 years you will see the demand for the area skyrocket as the area grows and develops, while still being close enough to do activities in the city pretty regularly.
If you don't care at all about where you live get out to a low cost of living area and just bank all the extra you're making while having a nicer house than you could get most other places.
I'm in the process of buying my own house, actually! I'm in the UK and I'm near the tail-end of things:
Started signing the contracts, paid all my deposit off, now waiting for other side to sign contracts, agree completion date and celebrate having my own house!
It has been very stressful so far, as I've paid the deposit but it doesn't guarantee that the deal won't fall through.
One thing I'm realising though that there is never a good time. House prices have started climbing down recently here in the UK, but that's because interest rates have been climbing up. So it's a matter of picking your poison: do you want high monthly interest rates with the chance of a cheaper house, or do you want a more expensive house but "reasonable" interest rates on your mortgage?
Also, I've saved for nearly a decade now, so I feel like I should be able to afford it. I do worry if the deal falls through, I do wonder what happens to my deposit. I should get it back, but who knows. I try not to think about it though.
I don’t know many people who didn’t feel like they were overpaying when they bought their home. 10 years later the story typically changes.
Trying to time the housing market is like trying to time any market- incredibly difficult.
The problem we’re seeing now is people who hold low interest rate mortgages are hesitant to sell and “upgrade” to a bigger home at a higher rate. So even though sales are down, starter inventory is also down and prices don’t budge.
I think if the current market puts things out of reach the best thing you can do is continue to save, and focus on your earning potential and growing a career. Prices may not fall, but they could very well stay stagnant. If you find yourself making more money in 5-10 years the math might start to work.
You could also relocate to a cheaper part of the country. If you compare US real estate to say, Europe, it’s still relatively cheap here when comparing cities with similar population densities.
I'm an idiot who just got stupid lucky with timing and mortgage rates. Bought my house in 2017 with a 30 year loan paying something like 4.65%, then refinanced in 2021 during COVID, and it just so happened to be the rock bottom for mortgage rates at the time, changed my loan period to 15 years and am now only paying 2.25%. Almost immediately afterwards rates started shooting up again, along with the prices of homes. I pity anyone trying to afford a mortgage on a modest family home in today's market.
On the flip side, the first (and only other) house I owned is one I bought in 2012 and sold in 2017, and it more than doubled in value after I sold it.
You might get stuck there....
I thought i was staying at my first place for at least 5 years... redid cabinet, carpert, paint, new appliances, blinds... slowly fixed it up. After ~5 years, id be starting a family and hopefully sell for a profit.
bought in 2006 except the market crashed in 2007 and i was under close to 50% and felt trapped forever.
rented it out (losing about $50/month) waiting for to turn around and finally sold it 2 years ago making $20K
I was in a similar position last year, difference being it's my partner and I. Super glad we didn't wait. I feel as if everyone keeps saying we're almost at the point pricing will drop.... But they've been saying that for months now. If we had waited, we'd still be waiting. Instead, we have our house. We've been making improvements. It feels great knowing our money is going to OUR house, not rent going into the pockets of some landlord. I'll never go back to renting.
Was it stressful? Absolutely. The most stressful thing I've done I think. But I'd do it again.
Hey, I am the a similar position as you and recently posted a similar question. I'm looking to start making offers around mid-September if all goes okay these next few months. It has been a dream of mine to own a house for many years, and when I was living in California I recognized it was unfeasible to do on my salary.
Right now, I am targeting the NC triad area (Greensboro, High Point, Winston-Salem) as I think this place will be the best overall for me for the future. It is a high potential area with lower housing prices than other relatively similar sized cities. It has an Amtrak route that will take you to Charlotte and DC, and Raleigh is just a little over an hour drive away if I need it. Only downside is going to be heat and humidity in the Summers, but it isn't anything I haven't experienced before. You can still find a good amount of houses with some decent sized plots of land for <$250k.
If I weren't trying to be closer to my family, I would choose either Grand Rapids, MI because it is in a similar growth phase as the triad, and it will be one of the most desirable places to live with climate change encroaching in 30-50 years, or I would choose Minneapolis/St. Paul for the bigger city feel.
My advice is if you are interested, search for first time home buyer programs that you may qualify for. NC has a great one that will assist with down payment assistance. It is a 0% interest rate second mortgage that will bring your monthly house payment down. Only downside is the commitment to live there or risk needing to pay back that loan.
I'm with you. I tried earlier this year but the 7% interest rate just killed me. I couldn't even afford a $175k studio in my city. Ridiculous. I too am concerned I'm going to get priced out of anywhere because our salaries just aren't keeping up with COL.
My boyfriend and I have been looking at houses for a few months now, and it's exhausting. But we're keeping at it! We're in the uniquely privileged situation to be living with family rent-free, so our plan is to keep our ears to the ground and bite when the right house shows up. So far we haven't had any offers accepted, and it's largely because our low budget means we're competing with other poor folk, wealthier folk looking for bargains, and landlords. The latter two are usually able to make cash offers with no contingencies, so they tend to get preference.
But we're holding out hope. We've had several friends get houses in the past year and we know it's possible.
If it helps, Associated bank offers loans with no PMI. We're also getting a $5k grant through them (we're at poverty level so ymmv). Normally I don't recommend dealing with banks, but not paying PMI seems like a worthy trade-off.